The current economy continues to move rapidly toward cashless (electronic) modes and devices for the fulfillment of both consumer and commercial transactions. The most common device is the payment card or “plastic” as it is commonly called. Generally, payment cards are issued by a bank or financial institution under license from an organization such as MasterCard or VISA. Payment cards may also be issued directly by organization such as Discover and American Express. In all cases, the issuing entities establish networks of merchants that accept the cards. Banks, payment card processors and other market participants service the accounts, fund, clear and settle the transactions and mange dispute resolution processes. Consumers can then use the payment cards to purchase goods and services from the merchants. The merchants, in turn, pay a percentage of the transaction, usually between 1.65% and 2.75%, to the various institutions participating in the integrated payment card enterprise relating to that transaction.
In order to promote the use of a particular payment card and to induce merchants to participate in the resulting enterprise by accepting payment cards as a form of payment, payment card issuers rely on a wide variety of marketing tools and advertising techniques. For example, some payment card companies offer special discounts to card users if they buy particular products or services. Other payment card issuers offer airline frequent flyer miles or “points” redeemable for goods and services and yet other card issuers, such as Discover, rebate a small percentage of each qualifying transaction to the consumer, typically in the order of one or two percent. Other types of promotional devices include future shopping credits based on payment card activity, which may be used when purchasing large ticket items such as vehicles or appliances.
In addition to the conventional payment card, other types of non-payment cards are used in consumer transactions. More and more merchants, such a grocery store chains, are issuing consumer cards known as frequent shopper cards. These businesses promote use of these cards as an incentive to shop frequently and as convenient alternative to paper coupons. The object of these non-payment cards, similar to the frequent flyer programs run by certain payment card issuers, is to build loyalty by offering customers discounts and incentives. The customer presents the card to the merchant at the time of purchase, the card is scanned and certain items are discounted.
The advantage to the merchant is that such cards use a database which permits the merchant to track and reward the shopping habits of a particular customer, permitting the delivery of targeted offers and eliminating the need for cashiers to visually and electronically scan coupons. Like their payment card counterparts, these non-payment vehicles build customer loyalty and facilitate the collection of information on shopper's buying habits, preferences and demographics, thereby providing the merchant with valuable demographic and product information which will assist in the marketing and development of both new and existing products and services.
Other types of payment cards are known as SMART cards or e-cards. These cards are also an alternative to hard currency. A SMART card stores information digitally and, in some cases, incorporates the ability to interact with third-party computers or point-of-sale terminals. SMART cards are robust in their capabilities since they use embedded microprocessors powered by the in store terminal to store, process and transmit data.
Commonly used payment cards also include debit cards for both on-line (PIN based transactions) and off-line (signature based) transactions. The debit card is presented as the point-of-sale and “swiped”. The user may then enter a PIN number or simply sign the receipt authorizing a direct deduction from a checking or savings account in the amount of the purchase or an amount that includes additional cash back to the cardholder.
Due to a recent class action suit the nation's merchants brought against Visa USA and MasterCard International, the future of issuer funded debit card programs is in question. Interchange fees will not be sufficient to cover the current costs associated with many programs. In January of 2004 VISA and MC will abandon the “honor all cards” rules that required merchants who accept credit cards also to accept signature based debit cards (so called off-line) debit cards. In sum, merchants will be able to accept VISA/MC credit cards without having to accept their debit cards.
This significant and fundamental change will create the opportunity for new and innovative solutions such as those contemplated in the present invention which shift the cost of the loyalty and reward programs from the issuers to the participating merchant.
In the United States today, an increasing plurality of consumer actively use payment cards or related electronic means of one type or another to purchase goods and services. Payment cards are used as a convenience, as a source of consumer credit, and as a source of intrinsic benefits such as airline miles or shopping “points”. Regardless of the motivating force both the percent and dollar volume of all consumer transactions that are facilitated by payment cards continues to grow.
As the same time payment card use has been increasing, household savings rates in the United States continue to decrease and, in fact, are reaching historic lows. This situation is of particular concern to many American households in today's environment of uncertainty regarding the long-term viability of Social Security and increasing education and medical expenses.
Studies show that million of American households have not and are not adequately providing for retirement or other significant expenses. Further, government and private studies predict that the Social Security system will experience financial problems within the next fifteen years. According to the trustees, the United States Social Security system will actually become insolvent by the year 2029 if the government does not take remedial steps. These steps will most likely involve either an increase in taxes (further eroding savings) or a diminution in benefits (further exacerbating the retirement savings problem itself). Accordingly, it becomes more and more incumbent upon consumers to plan for their own retirement in order to ensure a secure future. This will only occur if overall household savings rates are increased.
Studies have also shown that workers born in 1950 can expect approximately $631 per month from Social Security. Had the worker invested his payroll tax in a 50/50 mix of government and corporate bonds, his monthly retirement income would have been approximately $1,069 per month. Had the same worker invested in a stock portfolio of 75% large capitalization companies and 25% small cap companies, he would receive monthly income of approximately $2,419 per month. Studies have also shown that Americans are becoming increasingly aware of their lack of personal savings and the potential shortfalls of the Social Security System and are receptive to alternative savings vehicles.
The present invention leverages the ever-expanding use of payment cards and other electronic payment means by consumers and the proliferation of traditional loyalty and reward programs, to address a fundamental problem facing a plurality of American households: How to create and implement a long-term savings plan.
Various rebate and refund systems can be found in both prior art and patent literature. For example, U.S. Pat. No. 4,750,119 describes a purchasing system with a rebate feature, which allows for the input of purchase orders and correlates transfer of funds from purchasers to vendors. A future benefit guarantor supplies the rebate factor, which is input into the system. The system then computes and reports the rebate, which is due in the future to each subscriber or purchaser. The system provides instructions to pay the vendors for selected goods and services and pay the future rebate guarantor a premium representing the purchase price of future guaranteed rebates. Preferably the premium is paid on a daily basis to the guarantor and a group annuity contract is funded.
U.S. Pat. No. 4,941,090 shows centralized computer cash value accumulation system based on point of sale transactions with multiple merchants. The consumer's account number and birth date are transmitted to a central system along with data identifying the merchant and a credit line determined by the merchant. At the central location, a cash value for that consumer is incremented by the credit value and a bill for that merchant is similarly incremented. Periodically the merchants are billed for the accumulated bill value. Also at selected intervals, consumers are given access to their respective accumulated cash values by either check or through funds dispensed electronically. Preferable the intervals are selected to correspond to the birth dates of the consumers.
U.S. Pat. No. 5,537,314 shows a credit accumulation and accessing system for a plurality of sponsors and participants. Under the control of an operational program, several tasks are accomplished including creating sub-directories for a single participant account so as to selectively associate the single account sub-directory with multiple sponsoring company accounts in deciphering and, accordingly at points of sale, calculating, posting and issuing discounts, raffle entries, store credit returns, points and cash values in accordance with the performance of participants. Award output devices provide consumers with access to funds based upon the cash value in the consumer account and may include wire transfer, check, cash coupon, payment card balance reduction or catalog merchandise.
In addition, U.S. Pat. Nos. 6,009,412 and 6,061,660 all describe methods and systems for conducting and supporting consumer loyalty and reward programs.
It is important to note that neither the prior art nor existing consumer loyalty and reward programs in the market today focus on, address or attempt to resolve the growing inability of a plurality of American households to independently and successfully save for retirement by using their payment cards for everyday spending at small mom and pop business. Studies have shown that 85% of household discretionary income is spent within a ten mile radius of the home which further evidences the need for a cost effective system to calculate and capture merchants sponsored discounts which are deposited into an investment savings account.
The current invention is an improvement over existing payment card based financial transaction systems due to the method in which the merchant sponsored fees are calculated, captured and collected. Micro investing programs—investing small amounts of money over a long period of time—as instituted by Boston based Upromise, Inc. and Atlanta based Babymint, Inc. have tied merchant sponsored discounts to college savings plans. The distinction is that these programs require that the fees be collected through automated clearinghouse (ACH) transactions which are cumbersome and many participating merchants resist giving a program administrator access to their bank accounts. Alternatively, the program administrator has to invoice their merchants for all fees related to qualified and eligible transactions. Historically, these “shop and save” programs have been limited to national merchants because of the difficulty associated with collecting payment from small mom and pop businesses. As a result, the merchants sponsored discounts are typically under ten percent since national merchants do not historically pay as large a discount as smaller, independently owned and operated businesses.